Verizon Posts Loss, Mobile Subs Beat View

Verizon Communications posted mobile customer growth that blew past Wall Street expectations for the fourth quarter but it reported a net loss from a hefty charge for worker layoffs.

Don Ryan

Verizon

Verizon , the majority owner of No. 1 mobile service Verizon Wireless, added 2.2 million mobile customers in the quarter compared with the average expectation for 1.5 million from four analysts contacted by Reuters.

It posted a net loss of $653 million, or 23 cents per share compared with net income of $1.24 billion, or 43 cents a share in the same quarter a year ago. Before items such as $3 billion in charges for workforce reductions, Verizon said it would have earned 54 cents per share.

"We're facing more significant headwinds than we'd thought we'd face," Chief Executive Ivan Seidenberg told analysts on a conference call, where he promised to focus on improving profits in the fixed-line business.

Revenue rose to $27.1 billion from $24.65 billion in the year-earlier quarter, before it bought mobile service Alltel.

This compared with the average analyst estimate for $27.33 billion, according to Thomson Reuters.

"It was a solid quarter but not great," said Piper Jaffray analyst Christopher Larsen. "Retail wireless subscribers were in line with expectations. Wholesale was meaningfully ahead but they tend to be lower value customers."

Verizon's addition of 1.2 million retail customers was slightly ahead of analyst expectations, and was likely driven by heavy marketing of Motorola's Droid phone, which runs on Google's Android operating system.

Larsen said this meant that Verizon probably gained back some market share previously lost to AT&T , the exclusive U.S. provider for the Apple iPhone.

In the growing and lucrative business of selling service for smart phones, AT&Tand Verizon are the top dogs, outstripping T-Mobile USA and Sprint Nextel.

That positions them well as prices for voice service are coming down, while revenue from data is increasing. Increasingly, people use their phones for texting and e-mailing rather than phone calls.

In January, Verizon Wireless cut the price of unlimited voice service. At the same time, it started to require data plans for more of its customers. AT&T quickly followed with similar moves, but both companies are still substantially more expensive than their competitors.

Playing in the smart phone market can be expensive, though: In early January, Verizon said it expects fourth-quarter earnings below Wall Street estimates. The subsidies it pays on new phones lowered its profit margin because it had an unusually high number of new and upgrading customers.

Also, while Verizon Communications benefits from the growth of the wireless industry, it only owns 55 percent of Verizon Wireless, meaning it doesn't get to keep all of the profits. VodafoneGroup of Britain owns the rest.

Meanwhile, Verizon's traditional phone business continues to erode. It's replacing its copper lines with optical fiber in core areas, which has stemmed revenue declines, but at a high cost.

Verizon, which has spent billions of dollars building the FiOS home video and Internet service to compete better with cable rivals, said it added 153,000 FiOS customers, missing analyst expectations for more than 200,000.

The lower-than-expected FiOS growth was partly due to the economy, Chief Financial Officer John Killian said. He said he was confident the economy would not get worse, but noted that good third-quarter trends from business clients did not follow into the fourth quarter of last year.

"We are looking for and planning for an economic recovery but more back-end loaded (for 2010). We see a modest recovery, not a boom time situation," Killian told Reuters.

Verizon shares fell in early trading Tuesday. Get Real-Time Quotes for Verizon